💊 The New Adderall

You know you love it, and it might be becoming the new Adderall June 5, 2024 | Peel #724 Silver Banana goes to... [CapLinked. ]( In this issue of the Peel: - 🏦 Banks performed well in Q1… despite one half-a-trillion-dollar problem - 🔻Country music stars helped one stock & Hindenburg took down another - 🚭 You know you love it, and it might be becoming the new Adderall Market Snapshot 📸 = Banana Bits 🍌 - [CNBC breaks down]( Keith Gill’s (a.k.a. DFV/Roaring Kitty) journey from $53k to nearly $300mn - Zuck might not fight Elon, but Meta’s AI chief [sure will]( - Musk redirects thousands of Nvidia chips to his [other ventures, X and xAI](=) Swipe Right on Caplinked: Your Perfect Match Still stuck with your old VDR? Time to ditch your current shitty relationship and swipe right on Caplinked. Think of it as the badass dating app for your deal-making game. Say 'hell yes' to deals that close faster than your ex can text back. Caplinked isn’t just another pretty face; it's got the brains too—unmatched security, slick interface, and the kind of performance that makes every transaction a victory lap. Ready to stop messing around with the rest and get serious with the best? [Upgrade to Caplinked.]( It’s time to fall hard for your VDR again. Macro Monkey Says 🐒 Banking On Banks Nobody likes getting exposed… especially if you’re Drake. But rap beefs tend to do that to you. So, our advice for the day is if you want to avoid getting brutally exposed, avoid beef at all costs. Unfortunately for them, banks have been beefing with—let me check my notes—every single person for all of human history. As this beef rages on, the U.S. government now enforces legally mandatory exposure of these banks 4 times per year. And I’m not talking about quarterly earnings. We’re talking about the big daddy of every U.S. bank—the Federal Deposit Insurance Corporation (FDIC). Let’s get into it. What Happened? Just a few days ago, on May 29th, the FDIC released its Quarterly Banking Profile (QBP) for the first quarter of 2024. The report is meant to help the government and nerds who care about this stuff (like us) to understand the unbiased financial position of the nation’s largest banks. Clearly, it didn’t help much back in ‘08, but let’s see if it matters now. [Source]( Net interest margin is one of the most important metrics for assessing a bank, as it measures the spread between interest earned on loans and interest paid on deposits. In Q1, despite the revival of the “higher for longer narrative,” banks still saw NIM fall. From a consumer’s lens, that’s actually a good thing as it means your deposits are earning more money, even if the APY is still at only 0.02%. From a regulatory lens, this could be slightly concerning given that deposits are considered financing for banks. A higher cost of financing means that banks will see profit margins squeezed and may cause lower volumes of loan origination. However, net income did increase in Q1, mostly thanks to lower credit loss provision expenses and higher noninterest income. Credit loss provisions are like a bank’s rainy day fund. It’s the cash they set aside to cover anticipated loan defaults and other losses, so seeing this expense fall is a double-edged sword. It shows that banks are confident, but noncurrent loans (a.k.a. loans that are in or entering default) grew at an increase for the same period, bringing the coverage ratio of allowance for credit losses/noncurrent loans down from 202.3% to 192.8%. [Source]( Overall, the report was as solid as banking reports 4 years after a world-stopping pandemic could be. And, a year after SVB and Signature Bank’s collapses (in which I definitely didn’t buy share of SVB on the day it collapsed) it could be worse. There’s a lot of data in this 32-page bad boy that’s mostly comprised of approximately one bajillion lines of size 4 font detailing every metric possible to extract from a financial institution. Some of the highlights, both good and bad, include: - Net Income rose 79.5% annually across all banks, mostly due to lower FDIC special assessment charges - Loan Balances decreased 0.3% from Q4’23 and increased 1.7% from Q1’23 on weakness in auto and credit cards and strength (surprisingly) in CRE loans - Total Deposits across all banks grew 1% compared to Q1’23 - Return on Assets declined from 1.36% in Q1’23 to 1.08% in Q1’24, while Return on Equity declined from 14.42% to 11.15% for the same period - Leverage Rations rose from 9.14% last year to 9.19% in Q1’24 Who Cares? The headline is essentially that all is well, and banks are broadly moving in a more risk-on direction, given growing loan balances, fewer provisions for losses, and increased deposit rates. … but I do have a slight secret that I haven’t exactly mentioned yet. Two data points in this report are particularly concerning when paired with this more “risk-on” direction. First, the prevailing noncurrent and net charge-off rates are both steadily increasing, meaning that defaults and near defaults are both on the rise: [Source]( While not at dangerous levels (yet), if this trend continues in the same direction, we’re gonna start to get worried as these bad loans approach the 2% range. And now, the far-and-away scariest part of the report can be found in exactly the same line item that brough down SVB and led to the brief bank panic of Q1’2023. Unrealized losses for both HTM and AFS securities are enormous. Here, we can see the market value of unrealized losses on investments held on bank balance sheets. Held-to-maturity means banks will hold those bonds until they mature, and available-for-sale securities are ones that banks can sell if they need to. If held to maturity, those assets show no issue as banks will get their principal back. But, having to dip into their available for sale balance in order to cover deposits is exactly what set SVB down a spiral of horror reminiscent of 2008. SVB ended up having to go into its HTM portfolio to cover deposit flight, leading to its eventual collapse. So, while this isn’t a problem in and of itself right now if depositors pull too much cash, a bank run can follow faster than the FTX collapse. Total unrealized losses now sit at a cute, lil $516.5bn, less than in Q1 of last year, but greater than Q4. Despite the low risk that unrealized losses present in themselves, the ramifications of banks having to use them would be monstrous. The Takeaway? How’s your Wednesday going? Aren’t you glad we saved that slight detail for the end? Our bad. But really, despite the easily clickbait headline of “banks sitting on over half a trillion in losses,” the risk this presents is quite low… until it’s not. The tough part is that we can’t accurately model how, when, why, and which banks will face deposit flight that triggers AFS and/or HTM sales, leading to nationwide bank runs. BofA itself is sitting on ~$110bn in unrealized losses alone, so I guess keeping an eye on the nation’s 2nd largest bank by deposits is a good start. The important metrics to watch for now include trends of loan losses and deposit growth (or lack thereof) as if either one of those were to move into problematic territory, that’s where the trouble will start… and end… very quickly… and badly. Given the growth in the bank’s risk-on nature in Q1, we should be more concerned about this potential in Q4. Despite the low odds, the implications are larger than the average banker’s ego, if you can believe it. But most swans are white… so hopefully, this one stays that way, too. What's Ripe 🤩 Carnival Cruise Lines (CCL) 📈5.8% - The world’s biggest cruise line is getting even bigger, so if you’re a fan of floating on a box in the middle of the ocean, consider this your Christmas. - Carnival announced Tuesday that they are rolling P&O Cruise Australia into the flagship Carnival brand, looking to increase capacity. - As the travel boom continues to rage, analysts are psyched at the uptick in capacity. Boot Barn (BOOT) 📈4.5% - It might be time for Boot Barn to hire Morgan Wallen and Zach Bryan, as these guys have created more wanna-be cowboys than anyone since John Wayne - And the nation’s preeminent Western supply store is loving it. Yesterday, Boot Barn boasted its 1.4% same-store sales growth in the first 13 weeks of Q2. - In an environment of receding discretionary spending, it’s nice that bejeweled belts and boots have apparently become staples. Thanks, Zach and Morgan. What's Rotten 🤮 Bath & Body Works (BBWI) 📉12.9% - Needless to say, I haven’t bathed or worked on my body in years—and it seems like others are finally joining me as Bath & Body Works shares tank. - Although the company beat estimates for the first quarter, reporting $0.38/sh on sales of $1.38bn vs estimates for $0.33/sh on $1.37bn, guidance was weak. - Analysts were expecting flat earnings in Q2, but the firm made the mistake of being honest, saying they’d fall to a range of $0.31-$0.36/sh. Axos Financial (AX) 📉4.2% - Axos shares came under more fire Tuesday morning than someone wearing a MAGA hat at a Free Palestine encampment as the stock serial killer is back. - Hindenberg Research, known for murdering companies like Nikola and Clover Health, is quickly becoming the Warren Buffett of shorting stocks. - Tuesday morning, the firm targeted Axos Financial on allegations of a loan book that is far riskier than disclosed and sh*tty underwriting standards. - Shares fell over 17% by open. Although initially sterling, weaker calls lately have dampened Hindenburg’s reputation. Axos carries a short float of 16%. = Thought Banana 🤔 The New Adderall The 80s had cocaine, the 2000s had Adderall, and now, the 2020s have something entirely new to power the brains and (probably) ruin the hearts of Wall Street traders and analysts. I have no clue what they were doing pre-Reagan, but it must’ve been real wild based on this trajectory. This new Adderall might be even more common at frat parties than its older counterparts. Of course, we’re talking about everyone’s new favorite adult candy: Zyn. What Happened? Trading floors and fraternities across America can start praying to Swedish Match to create their new lord and savior, 6mg Wintergreen Zyn. All flavors are equal, but not all makers are equal—at least in the U.S.—as Zyn completely dominates the U.S. market for smoke-less, tobacco-free nicotine. Zyn, for the uninitiated, is a small white pouch containing a combination of nicotine, flavoring, sweeteners, and plant based fibers that cool people place between their upper lip and their gums. Like chewing tobacco, Zyn’s nicotine delivery system involves creating small incisions in a user’s gums through which the nicotine enters one’s system. Basically everything else is unlike chewing tobacco, however. Even with competitors like On, Lucy, Velo, and Rogue popping up, as of Q1’24, Zyn controlled nearly 80% of the tobacco-free nicotine pouch market in the U.S. = [Source]( Zyn’s dominance is undeniable, and it might be the product single-handedly saving cigarette companies like Swedish Match owner Phillip Morris from completely falling apart. Gen X, Millennials, and Gen Z look at smoking as close to the social equivalent of knocking over an elderly woman in a wheelchair—kind of funny, but no one should ever do it in real life. Needless to say, drunk cigarettes absolutely do not count, and neither do sober Zyns. The only time Zyns does count is when we’re talking about Phillip Morris’ income statement. In addition to the tremendous growth seen above, Zyn also carries by far the highest margin of Phillip Morris’ 3 main product categories, as we can see here: = [Source]( Phillip Morris expects total shipments of Zyn to cross 560mn in 2024, implying a compounded annual growth rate of over 91.1% since Q1 2018. So, with growth this explosive, the obvious question becomes why. Well, we have some theories. For starters, Zyn had a major first-mover advantage here in the U.S. Prior to the launch of the product, nicotine pouches were reserved for fishermen and baseball players who didn’t want to get chaw all over their teeth, lips, shirts, and their spouse’s face. Moreover, upon launch, Zyn’s brightly colored, almost designed-for-digital logo captures attention when you’re at the gas station arguing with the clerk over the proper discount applied to your Slim Jims. Much more important, however, is the pop culture niche Zyn has forged for itself. Gen Z and millennial consumers appreciate little more than authenticity, so when a marketing campaign this grassroots comes along, of course, we’re on board. In the U.S., it’s not exactly legal to advertise tobacco products. Zyn doesn’t have any tobacco, but it’s a gray area most companies don’t want to cross. So, Zyn used a combination of 1) initially way oversaturating gas stations and convenience stores to get its name recognition out there along with 2) a rewards program designed to get users coming back for more. Plus, it is nicotine, after all, so once someone’s tried it once, as long as they don’t hate it, you’re in the clear. But, the key to this segment was the oversaturation strategy. Swedish Math effectively shoved the product down the throats of U.S. consumers by putting it everywhere. Then, like any drug, users told their friends to try it. The Takeaway? Grassroots marketing and carving an attractive niche in pop culture have arguably become far more effective marketing strategies than running commercials or Facebook ads. Zyn took advantage of this, whether by accident or on purpose due to U.S. nicotine advertisement laws, but the biggest thing was getting Brad from Ligma Nuts to suck down some pouches, then telling Chad, Thad, and every other lad to get on board. Now, we see it on podcasts and other growing forms of media without the hosts even running them as ads. Popular comedians like Bert Kreishcer and Andrew Schultz have advocated for their use on their own shows simply just by popping a Zyn during the pod. Maybe Meta or Apple can follow suit in this marketing strategies so their virgin I mean VR helmets don’t flop as bad as the Apple Car of Meta Phone. The Big Question: Do you use Zyn? What other products or companies can take advantage of this grassroots, pop culture-driven marketing strategy? Banana Brain Teaser 💡 Previous 🗓 The probability that event M will not occur is 0.8 and the probability that event R will not occur is 0.6. If events M and R cannot both occur, what is the probability that either event M or event R will occur? Answer: 3/5 Today 🕐 The total cost for Company X to produce a batch of tools is $10,000 plus $3 per tool. Each tool sells for $8. The gross profit earned from producing and selling these tools is the total income from sales minus the total production cost. If a batch of 20,000 tools is produced and sold, then what is Company X’s gross profit per tool? Send your guesses to vyomesh@wallstreetoasis.com Wise Investor Says 🤓 “Don’t be afraid to take risks and embrace failure. That’s where the best opportunities often lie.” — Jim Simons How Would You Rate Today's Peel? 😁[All the bananas]() 😐[Meh](=) 😩[Rotten AF]() Happy Investing, David, Vyom, Jasper & Patrick [ADVERTISE]() // [WSO ALPHA](=) // [ACADEMY]() // [COURSES]() // [LEGAL]( [Unsubscribe]( IB Oasis Corp. (aka "Wall Street Oasis") 14435 Big Basin Way PBN 444 Saratoga, California 95070 United States